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Malaysian SMEs Development Future and Chal - 2016 - Procedia - Social and Behav
Malaysian SMEs Development Future and Chal - 2016 - Procedia - Social and Behav
Malaysian SMEs Development Future and Chal - 2016 - Procedia - Social and Behav
com
ScienceDirect
Procedia - Social and Behavioral Sciences 224 (2016) 254 – 262
6th International Research Symposium in Service Management, IRSSM-6 2015, 11-15 August
2015, UiTM Sarawak, Kuching, Malaysia
Abstract
M alaysian Small M edium-sized Enterprises (SM Es) is largest business establishment and vital component of the country’s
economic development. However, limited studies were examined on their development, challenges and future green prospects,
especially in service sector. Therefore this article examines the development of SM Es in M alaysia, challenges and opportunities
of green practices among SM Es which is play a vital role in the nation growth. The uniqueness of this paper focuses on green
practices which is important for SM Es to progress and competitive in domestically and globally. The key messages from these
studies examined in this paper are that M alaysian SM Es contribute to the largest business establishment in M alaysia especially
service sector and majority of them are in micro size establishment. Nevertheless, there are wide recognition in the literatu re
about the factors hinder SM Es from expanding, this is mainly because high cost of raw materials, high initial cost of investment
and shortage of skilled labour. The concept of green environment is still at infancy stage in M alaysian SM Es. Environmental
management literature mostly published in the developed countries has proven that ISO 14001 Environmental M anagement
System (EM S) implementation has a positive and significant relationship with SM Es performance. This study is important
indicator to encourage other SM Es which has no green pract ices in place to consider joining the green bandwagon, especially
SM Es service sectors. The studies focused are conditioned by the search strategy used. In addition, other key words could be
including in future studies such as performance, customer satisfaction, financial performance, environmental and green supply
chain management in order to expand this search. The main contribution of this paper is to identify the development of SM Es in
M alaysia and future research proposals with regards to the benefit of the green practices (ISO 14001 standards) in M alaysian
SM Es service sector.
©
© 2016
2016TheTheAuthors. Published
Authors. by by
Published Elsevier Ltd.Ltd.
Elsevier This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Peer-review under responsibility of Universiti Teknologi M ARA Sarawak.
Peer-review under responsibility of the Universiti Teknologi MARA Sarawak
Keywords: SMEs; development; challenges; green practices; ISO 14001; EMS; Malaysia
1877-0428 © 2016 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Peer-review under responsibility of the Universiti Teknologi MARA Sarawak
doi:10.1016/j.sbspro.2016.05.457
Haslinda Musa and Muruga Chinniah / Procedia - Social and Behavioral Sciences 224 (2016) 254 – 262 255
1. Introduction
Small and mediu m enterprises (SM Es) p lay a v ital role in the Malaysia economy and are considered to be the
backbone of industrial development in the country. SMEs in Malaysia are on track to contribute 41% to the
country's GDP by 2020 co mpared to 32% in 2012, and the local SM Es are now suppliers for mu lt i-national
companies (M NCs) in the global chain. With the exposure and skills obtained, many entrepreneurs have raised their
companies' ability to penetrate the export market (Business News, 2014). The SM Es in Malaysia are categorized
into service, manufacturing, agricu lture, mining and quarrying and construction. SMEs recorded a strong growth of
6.0 per cent, wh ile GDP grew at 5.6 per cent in 2012. The prime movers fo r SM Es were the services, manufacturing
and construction and these sectors underpinned the expansion of GDP in 2012 (Depart ment of Statistic s, Malaysia,
2013).
Many SMEs around the world have little knowledge about environmental management and do not understand the
concept of environmental management. Therefo re, it is very difficult for SM Es to see a clear link between EMS
implementation and the benefits it offers (Weerasiri & Zhengang, 2012). Although previous research have tended to
focus main ly on the impact of large companies on the environment, it has been suggested that the estimated
collective impact of s mall-mediu m enterprises (SMEs) on the environ ment is substantial (Hillary, 2000) and could
outweigh the comb ined environ mental impact of large co mpanies. Therefore, it may be argued that greater attention
should be given to the SME sector in the social and environ mental management literatures (Moorthy, 2012).
However, based on Yacob et al. (2013) majority of SM Es in Malaysia have not yet given enough attention to this
issue unless they are energy intensive ventures or wish to present a clean and green image. In fact, the Malaysian
government is fostering a wide range of small to med iu m businesses in the country to exp lore the development of
green technology, through its Economic Transformat ion Programme (ETP). In addition, the government is
encouraging the adoption of green technology, as declared under the National Key Economic A rea (NKEA) (Yacob
et al., 2013).
This literature-based paper starts by defining the SMEs and the background of SMEs in Malaysia. It then
explores the roles of the SM Es in the economic develop ment of Malaysia and major challenges faced in going
green. The discussion leads to a consideration of the importance of g reen practices taking into account the SMEs.
The final section concludes by underscoring the importance of SM Es in economic develop ment and the notion of
SMEs which has remained largely untested.
A review of the definition was undertaken in 2013 at the 14th National SM E Develop ment Council (NSDC)
meet ing because of developments in the economy since 2005 such as price inflation, structural changes and change
in business trends. The new definition was simplified as follows in Table 1.
According to Census Report on SMEs 2011, there was a total of 645,136 SM Es operating their businesses in
Malaysia, representing 97.3% of total business establishments. The results showed that 90% of the establishment
was in the service sector, 5.9% in the manufacturing sector and 3.0% in the construction sector. The remaining was
in the agriculture sector, 1.0% and mining & quarrying, 0.1%. The Census 2011 covered all sectors in the economy
namely, (1) service, (2) manufacturing, (3) agriculture, (4) min ing and quarrying and (5) construction as compare d
to only three sectors which were covered in the census of 2005, namely manufacturing and s ervices and agriculture.
The census 2011 showed that the percentage of micro establishments remained the same as compare d to the
census in 2005. Overall, the majority of SM Es or 77.0% were micro -sized establishments followed by s mall
establishments, 20.0% and med iu m-sized establishment, 3.0%. SM Es in the services sector was the largest, with
more than 580,000 establishment representing 98.2%, fo llo wed by SM Es in the manufacturing sector, 95.4%.
Meanwhile SM Es in the construction sector represented 87.1% of the total establishments in that sector. Table 2
shows the detail of establishments by size in sectors .
Malaysian SMEs have evolved fro m a co mmod ity-based to a manufacturing sector producing a variety of
consumer goods. SMEs serve the growth of employ ment for a growing labor market and new ‘technopreneurial’
opportunities especially in the Selangor (19.5%), W.P. Kuala Lu mpur and W.P. Putrajaya (13.1%), Johor (10.7%),
Perak (9.3%), Sarawak (6.8%), Sabah (6.3%) and Penang (6.3%) (Ch in Yee Whah, 2006 & SM E Corp. Malaysia,
2011). The Census findings also showed that most of the SM Es were concentrated in Selangor, WP Kuala Lu mpur,
Johor, and Perak, representing more than 50%. Meanwhile, SM Es in Sabah and Sarawak represented 13.1% o f the
total SMEs in Malaysia.
SMEs contribution to GDP has increased fro m 29.4% in 2005 to 32.3% in 2011. For the period of 2006 to 2011,
growth of SMEs surpassed the overall economic gro wth. Table 3 indicates the share of SMEs GDP to overall GDP
was 32.4% in 2012. SM E businesses form a very large part of Malaysia’s economy. But their contribution to GDP is
still slightly lacking compared to those of developed countries. Thus, many SM E development programs have been
introduced to grow local SM Es, focusing on areas like Innovation & Technology Adaptat ion, Hu man Cap ital
Development, Access to Financing, Market Access and Infrastructure by Malaysia government.
Haslinda Musa and Muruga Chinniah / Procedia - Social and Behavioral Sciences 224 (2016) 254 – 262 257
According to SMEs Census 2011, there were 580,985 establishments in the services sector which constitute 90.1
per cent of the SM Es are classified in Serv ices sector consists of sub - sectors such as telecommunicat ion, private
education, healthcare, finance, insurance, professional & bu siness services, wholesale & retail t rade, restaurants and
accommodation. As shown in Table 4, below, the wholesale and retail trade & repair of motor vehicles and
motorcycles service sector has the highest concentration of SMEs, with a total of 289,798 (49.9 per cent), followed
by food and beverage service, which accounts for 142,721 (24.6 per cent), transportation and storage 40,025 (6.9 per
cent), Personal service and other act ivities 36,721 (6.3 per cent) and professional, scientific and technical service
19,054 (3.3 per cent). The list of activit ies for the transportation and communication sub -sector service such as
logistics and forwarding service, storage and warehousing, road haulage, sea and inland transport, highway
operations, courier service, public bus transport, car parking service (Omar & Arokiasamy, 2009; Saleh & Ndubisi,
2006). Meanwhile, a pro fessional sub-sector service is defied under the Malaysian Standard Industrial Classificat ion
such as (1) Non-Technical related: legal, accounting, business and management consultancy, advertising and (2)
Technical related: architectural, engineering, surveying and other technical activities.
As shown in Table 5, SM Es in the Malaysian manufacturing sector are a mix between the processing and
production of raw materials, for instance, food, beverage, textiles, petroleum, wood, rubber and the assembling and
manufacturing of electrical of electronics application and components, among others. Malaysian SMEs account for
more than 95.4 per cent of the total manufacturing establishment in the country. Ho wever, co mpared to other sectors
SMEs account for only 5.9 per cent of the establishment by micro -enterprises (57.1 per cent) followed by small
sized category (36.8 per cent) and lastly mediu m sized category (6.1 per cent). SM Es were mainly in the textiles and
wearing apparel, food and beverage, products, fabricated metal p roducts, and printing and reproduction of recorded
med ia. The details of the manufacturing sub sectors and the number o f establishments pointed out in Table 5 belo w.
In term of geographical location, the majority of manufacturing co mpany in Malaysia were found to be located in
West Coast of Malaysia, which is industrialised and has ports facilities.
In the agriculture sector, total SMEs account for 6,708 enterprises establishment, 70.5 per cent were in the crop,
followed by livestock 13.4 per cent, fisheries 11.64 per cent and 4.50 per cent forestry and logging. About 56.3 per
cent of SMEs are categorised in the micro category. Refer Table 6, for detailed nu mber of firm and proportions. In
terms of geographical location, the majority of agricu ltural farms in Malaysia were found to be located in the Johor
994 establishment or 14.8 per cent, followed by Perak 964 establishment (14.3 per cent) and Selangor account for
834 (12.4 per cent) establishment. The concentration of SM Es in the state has a close relationship with the dominant
economic activity.
Haslinda Musa and Muruga Chinniah / Procedia - Social and Behavioral Sciences 224 (2016) 254 – 262 259
As in Table 7, total SM Es in min ing and quarrying account for 299 enterprises establishment, 83.6 per cent were
in the stone quarrying and 16.4 per cent in mineral min ing. About 42.1 per cent of SM Es are categoris ed in the small
category. Refer Table 7, for detailed number o f firm and size. In term of geog raphical location, the majo rity of
mining and quarry ing firm in Malaysia were found to be located in the Perak report 84 e stablishment or 28.1 per
cent. The state government revealed that Perak has the most number of quarries in the country and also known as the
biggest producer of cement in the country. Royalties fro m tin -min ing and quarry activities have increased ten times
to RM 54.1 mil in 2012 (co mpared to RM 5.6 mil a year before) after the state adopted the new State Mineral
Enactment.
T able 7. Distribution of SMEs in mining & quarrying sectors by sub- sector and size.
Sub Sector Micro Small Medium T otal SMEs
Stone quarrying 51 104 95 250
Mineral mining 6 22 21 49
T otal 57 126 116 299
Source: SME Census 2011 by Department of Statistics, Malaysia.
Based on a summary of findings of the first quarter 2014 SM E survey by SME Co rp. Malaysia, factors that
hinder SM Es fro m expanding o r investing were high cost of raw materials (49%), high init ial cost of investment
(31%) and shortage of skilled labour (29%). In 1Q 2014, about 74% of respondents cited that the current rising cost
led to an increase in operating cost of their firms, which require a b igger amount of loans to operate their current
business operation (55%). Meanwhile, 78% of the firms were moderately labour intensive (SM E Co rporation
Malaysia, 2014).
SMEs are often constrained by many problems such as the lack of skilled workers and technical know-how, little
or no innovations through research and development (R & D), limited economic of scale, and difficulty in shaking
off tradit ional methods of operation. Many SMEs place insufficient attention to upgrading the skill and knowledge
of their workforce, or are reluctant to take advantage of training programmers’ sponsored by the government. The
shortage of a technically skilled workforce will not attract MNCs and their investment. (Ch in Yee Whah, 2006). The
majority of SM Es in Malaysia have not yet given enough attention to the green issues and the challenges of
environmental initiatives in SMEs are relatively under-researched (Worthington & Patton, 2005).
There is a wide recognition in the literature about the challenges and barriers facing Malaysian SM Es. Wan
(2003) highlighted many challenges facing SM Es in a globalised environment, for examp le, lack of financing, low
productivity, lack of managerial capabilities, access to management and technology, and heavy regulatory burdens,
among many others.
Ting (2004) h ighlighted many challenges that are still facing Malaysian SM Es. He identified five key challenges:
lack of access to finance, human resource constraints, limited or inability to adopt technology, lack of informat ion
on potential markets and customers and global competition. He also argued that there is a high risk that SMEs will
260 Haslinda Musa and Muruga Chinniah / Procedia - Social and Behavioral Sciences 224 (2016) 254 – 262
be wiped out if they do not increase their competitiveness in the new, rapidly changing world of globalisation.
Pertaining to the perspective of the owners / managers of SM Es, there are three main barriers preventing them
fro m engaging in good environmental practices. They are as follows: the characteristics of SM Es in general,
resource availability (includ ing financial, human and time), and, lastly, their personal interest and knowledge of (or
lack of) environ mental management (Yacob & Moorthy, 2012). Many owners/managers of SM Es do not see
environmental issues, or the need to act in an environ mentally responsible way, as a significant issue for their
business (Condon, 2004; Revell and Blackburn 2007; Studer et al., 2006). So me have an overall lack of knowledge
about effective environ mental and sustainability issues (Tilbury et al., 2005) or of specific pract ices that they can
implement (Walker et al., 2007) and are fearfu l of doing things wrong (NCBS, 2006). They lack an understanding of
both environmental problems and risks and of the potential benefits of environ mental imp rovements (Revell &
Rutherfoord, 2003). They lack the expert ise and confidence of doing something that is not the core business as most
SME owners/managers are good technicians but poor managers (Red mond et al., 2008). Many owners/managers
either perceive that their business has no impact on the environment (McKeiver & Gadenne, 2005) or consider the
impact to be s mall and therefore insignificant (Tilley, 1999). The final deterrent is that they see environmental
responsibility as too costly (Bustamante & Jennings, 2006; Lekas, 2006; Nutek, 2003; Bubna et al., 1999).
Presently, there is a boost in small and mediu m enterprises (SM Es) showing interest in the imp lementation of
ISO 14001 Environmental Management System (EMS). SM Es are keen on environmental impact and
simu ltaneously determined to gain a variety of benefits through the imp lementation o f ISO14001 EM S. Ho wever,
the imp lementation of ISO 14001 Environment Management System (EM S) among SM Es in Malaysia is still s mall
as only 118 SM Es are certified with ISO 14001 as up to 2009 (Goh Yen Nee, 2011). ISO 14001 is an international
standard which specifies requirements for Env iron mental Management Systems. It is the most widely used standard
for Environ mental Management Systems around the world. Organizations implementing Environ mental
Management Systems in accordance with the requirements of this standard are required to systematically identify
and manage the environmental aspects and impacts resulting fro m their activ ities, products or service. ISO 14001 is
applicable to all types of organizat ions, large or s mall, whether in the private or public sector. SIRIM QAS
International offers Environ mental Management System Certificat ion based on the ISO 14001:2004. Furthermo re,
the apparent impact of g lobal warming and climate change are co mpelling the big and small businesses to rethink
and revise their co mmercial strategies and showing interest in imp lementing green strategy to improve their business
sustainability and survival (Hillary, 2000).
Tari, Molina-azo rin and Heras (2013) suggest 13 benefits which most analysed (including environmental
performance with regard to the ISO 14001 standard) by scholars. Benefits of the ISO 14001 can be classified into
several performance dimensions as market share, expo rts, sales and sales growth, profitability, imp rovement in
competitive position/competitive advantage, improvement in systematization (improved documentation, work
procedures, clarity o f work, improvement in responsibilities), efficiency (productivity, savings in costs, reduction in
mistakes and rework, shorter lead t ime, improved management control), imp roved quality in p roduct/service,
improved image, imp rovements in emp loyee results (motivation, satisfaction, teams, co mmunication, knowledge),
improved customer satisfaction (reduction in co mplaints, etc.), improved relationships with suppliers, improved
relationships with authorities and other stakeholders and environmental performance. Other benefits which have also
merited g reat attention are improved image, imp rovement in customer satisfaction, improved staff results, improved
competitive edge and improved relations with stakeholders.
A considerable amount of literature has been published on the benefits of ISO 14001 standard on people,
operational and stakeholder performance. Supported by previous published studies, the benefits of ISO 14001 may
be divided into two main categories as in Table 8.
Consequently, the implementation of the ISO 14001 standard has clear benefits on certain issues, such as
efficiency, employees, systematization, customers and other stakeholders. In general terms, certified firms imp rove
people, operational, and stakeholder performance. Therefore, although the standard does create internal and external
Haslinda Musa and Muruga Chinniah / Procedia - Social and Behavioral Sciences 224 (2016) 254 – 262 261
benefit and has positive effect on people, operational and stakeholder performance, the relat ionship between these
standards and financial performance is not so clear (Tarí, Molina-azorín, & Heras, 2013).
5. Conclusion
This paper has set a context and rationale for research into green practices within SM Es. Our d iscussion has
focused on the background and challenges of SMEs and the important benefits of green practices. In the context of
our discussion it can be surmised, that green practices is fundamental for small sized firms to have a more
262 Haslinda Musa and Muruga Chinniah / Procedia - Social and Behavioral Sciences 224 (2016) 254 – 262
competitive edge domestically and internationally. The adaptation of green practices may well pro mote the positive
development of employees and also enhance productivity and profitability of SM Es for long term survival. ISO
14001standard imp lementation has a positive and significant relat ionship with SM E’s operation and business
performance and has also been extensively analyzed in the academic literature. In general, the benefits of EMS can
be classified into internal and external. Internal benefits include improvements in corporate processes having
positive effects on operational and people issues. Nevertheless, external benefits have greater effects on customers
and society in general (Tarí et al., 2013). In Malaysia, the adoption of EM S/ green p ractices is very well-received in
the manufacturing sector. It is reco mmended that this framework is extended to other sectors, mainly services,
agriculture, construction and min ing and quarrying. Co rrespondingly, it has also been shown that the size of firms
does have a significant influence where s maller firms have tended to experience greater imp rovements in recycling
performance compared to large firms (Babaki et al., 2004). Th is study provides insights into the definition,
background and role of SMEs, challenges faced by the SMEs and the perspectives of green practices.
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